Chase Beats Earnings Estimates; Guidance Improves

JPMorgan Chase & Co. (NYSE: JPM – $111.27) recorded adjusted earnings for the fourth quarter of $1.76 a share compared to $1.71 in the year-earlier period and seven cents better than analysts’ estimates. For all of 2017, reported results came in at $6.98 per share, compared to 2016’s $6.19. Revenues rose 5% in the fourth quarter, with an 11% increase in net interest income more than offsetting a 1% decline in fee-based revenues. Average core loans rose 6% year-to-year and net interest income benefited from rising interest rates. The decline in noninterest revenue reflected lower markets revenues, largely offset by growth in auto lease revenue and asset & wealth management income. Operating expenses increased 5%, driven by higher compensation costs other items, partially offset by lower legal expense. Credit-quality trends stay positive, but the company made a greater loan loss provision, in part, to build up its reserve for credit card loans. By business group, JPMorgan’s Consumer & Community Banking division logged an 11% profit advance driven by strong deposit growth and margins and higher auto lease and credit card loan balances. The Corporate & Investment Bank segment was the weak link, as profits fell 32% year to year, mostly reflecting low volatility in the fixed-income markets and a $143 million loss on a margin loan to a single client. But Commercial Banking and Asset & Wealth Management profits jumped 39% and 12%, respectively.

Looking ahead, I expect the healthy loan growth to continue and the company is poised to benefit from additional interest rate hikes. Management indicated the pipeline of investment banking business looks favorable, but credit card losses may continue to creep up. Overall, the company’s investments to build up its businesses should continue to pay off in higher revenues. Earnings in 2018 should get a large assist from the new tax law, which management expects will lower the company’s effective tax rate to 19%, from over 27% during much of the past decade and earnings for 2018 could reach $8.44 per share, providing for a decent valuation. Shares, yielding 2% and trading at record highs, can continue to be held for the long-term and dividend increases are likely, too.